The Numbers Are In: 2013 Wasn’t So Bad After All!

Rodney JohnsonWhen the Census Bureau reported last year that 2013 real median household income rose by a whopping $180, I was quick to poke fun.

$180? What would we all do with such an influx of cash? How would we store it? Where could we possibly spend it all? Wouldn’t our rush to consume drive inflation through the roof?

Last week when the government agency reported 2014 income, which fell by 1.5%, I realized my mistake.

As it turns out, I was wrong to belittle the measly gains of 2013. At least they were gains! Instead of sarcasm, I should have heaped praise on those few extra bucks. It was the only time since the financial crisis in 2008 that income adjusted for inflation had actually moved up, which goes a long way toward explaining why the U.S. economy remains stuck in low gear.

Real median household income reflects the inflation-adjusted income of the family that sits right in the middle of all incomes.

Half of all households are below this number, while half are above. Unlike the average income, the median is neither skewed higher by a few households with stratospheric earnings, nor pulled down by those living in poverty.

At $53,657, household income sits 7.2% lower than its peak in 1999.

The fall hasn’t been in a straight line. After dropping in the early 2000s, income rose in the middle of the decade before turning lower in 2008. Since then, we’ve seen income steadily drop except for the brief reprieve in 2013.

Interestingly, inflation has remained exceptionally low during much of this time, which means that incomes have remained almost flat in nominal terms.

Without more income, consumers can’t spend more unless they take on debt. After the crash and burn of debt in the last decade, borrowing with abandon seems like a really bad idea.

With boomers at the point in life of saving more than spending, real median income dropping, and debt viewed as a “four-letter word” to be avoided, we have the makings of a weak economy.

But the weakness isn’t universal.

Looking through the national numbers on income down to the state level, some interesting things appear. The change in income from the top varied widely from state to state, as did the timing.

Hawaiian income peaked in 2007, and has since fallen by a mere 2.6%.

Income in Texas topped out in 1999 just like the national number, but only dropped 2.0%.

At the other end of the scale, the middle family in Mississippi peaked in earnings in 2000, and has since suffered a stunning 24.7% drop! Those in Michigan and Nevada also saw their earnings fall 20% or more, with families in Alabama not far behind at negative 19.7%.

A few states exist in rarified air, where 2014 income topped all other years.

This group includes the energy states of Montana and North Dakota. It will be interesting to see if things change in that region for 2015, with oil prices down so low. Another state at the top of its game is Oregon, which doesn’t seem to have a specific reason for the high number, but I’m sure the residents are glad for it just the same.

The final two entries with top incomes last year aren’t surprising, but they are depressing – Washington, DC and Maryland. The nation’s capitol and its bedroom community derive most of their income from government, which means from taxes imposed on the rest of us.

So while 46 of the states are still dealing with less family income, at least we’re sending enough cash to Washington so that local residents in the area can live in style.

Rodney Johnson

Rodney

Follow me on Twitter @RJHSDent

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About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.